Well it was a rare, highly inactive Monday for IG primary markets today. Only one well-telegraphed new issue priced that had been in the pipeline for KEB Hana Bank in the form of a $500mm 3-year FRN. I heard that as many as 10 issuers stood down today following Go/No Go calls. So, what gives?

On Friday, I placed at the top of my edition, a comment from a widely respected Head of Syndicate. It was an interesting comment in that it expressed an against-the-grain opinion that Friday’s healthcare bill issue might actually be good for the market in that it pulls forward focus and attention on the all-important and market impactful tax reform bill. As we were getting ready to close shop on Friday my CEO asked me, “so do you think it’ll be busy next week? I said, “I hate to go against 24 of the top syndicate desks, but I fear we could see a zero day on Monday and a slower week in store. A health care bill failure will send a horrible message to the market.” I added, “I hope I’m wrong and that we see lots of issuance, but I think I’m right.” That’s how Friday ended as I left for the weekend.

Out of 24 desks surveyed, 19 of them, or 79%, were in a tight band of $25-$30b. That is always a great sign. It means a lot of joint leads verified that similar or consensus volume is expected. The comments were characterized by lots of smaller deals with the absence of any mega transaction. But, I cannot see how issuance gets done if the health care bill is pulled or doesn’t pass. Well it got pulled later on Friday as we now all know. The issue is that republicans made a mistake in prioritizing health care as the first item on their agenda. They did so because it was perceived internally as a “no brainer.” Their plan was to save a trillion dollars to justify a massive tax reform plan. Guess what? When it got pulled the message sent to Wall Street was that consensus will continue to be an issue within the GOP. That’s a MAJOR problem. The historic election is now over. People no longer want to hear the same campaign rhetoric, rather they want action, as the power to legislate has been voted on and given to Trump and the GOP. The first test was a failure. In fact, it is a massive failure. So, the market will not be kind to an Administration that has now experienced it’s “Dysfunction Junction” wake-up call. (I refuse to call it Capitol Hill or The Beltway anymore). It’s all about action now. Failure to get a consensus on tax reform WILL lose House and Senate seats in the next elections. That would be a political disgrace after the 7 long years they had amongst themselves to one day ratify a revamped bill. That day came and went last Friday.

The result? ………..The CT10-year is going back to 2.00% to 2.10% or lower. Here’s the challenge – with as many as 10 Go/No Go calls this morning that wound up with issuers standing down, we risk building a congested pipeline. That leads to creating additional congestion, sloppy deals, more concession and bankers could look bad advising clients to go now rather than wait for another 25-35 bps rally in yields. Let the market come to the issuer. The latter are in the driver’s seat. The market is waiting for a sign of optimism. That optimism will come when positive sounders on SUBSTANTIAL – as in “historic” – tax reform emanates from the White House and Dysfunction Junction. When that happens, equities will rally, yields will climb quickly and we’ll be back to where the GOP wants to be. For now, the Republican Party IS part of the Swamp that desperately needs draining. It’s a harsh but well-deserved wake-up call to get their act together. Seven years to fix Obama Care and they come up holding nothing but a yanked deal. Unbelievable folks! When that happens in business people get fired fast! Trump needs to run things like a corporation and Dysfunction Junction needs a hard case of tough love. This is not what was voted for on election day. It’s all about well……….waste management………now.

CT10 Year Yield Going Lower

Sorry if I sound like a broken record, but I published this next piece 12 days in advance of the recent FOMC Rate Decision on Friday, March 3rd and re-printed it the day of Janet Yellen’s Press Conference on Wednesday, March 15th. Here it is yet again:

………..I had an interesting and revealing conversation with a Chairman of a six-pack bank (That’s either BAML, CITI, GS, JPM, MS or WFS folks!) who shared thoughts on a potential March interest rate hike that the market has already built in. I thought it would be helpful and informative to you all. Here’s what that person said,

“Everyone is thinking a rate hike is coming in March but, the FED needs to be somewhat worried about the yield curve. When they raised rates in December 2015 the 10yr Treasury rallied 70 bps in yield, thus crushing banks’ net interest margin or “NIM” and, having the effect of dampening growth. When they raised rates this past December 2016, that did not happen…..instead all rates moved up a bit. But when Yellen talked about March being a “live meeting’’, the UST 10 year went from 2.56% to 2.31%……The Fed needs to talk a good game to dampen the “animal spirits” that have elevated equity markets but, I really don’t think the Fed wants to raise rates and see the 10 year Treasury move to 2.25%. As a result, it’s a very close call…..I err on the side of thinking that the rate hike comes in June. But, it’s close. If the Fed is committed to 2 to 3 hikes this year and they feel the markets are fully prepared for a March hike…they may just take advantage of that window.”

Today the CT10-year closed at 2.379% and has tightened 24.8 bps versus 2.627% on March 13th the Monday before the Fed raised rates. It’s going tighter. Issuers be patient!

IG Primary & Secondary Market Talking Points

The average spread from IPTs and/or guidance thru the launch/final pricing of today’s 1 IG Corporate-only new issues was <17.50> bps.

BAML’s IG Master Index was unchanged at +123. +106 represents the post-Crisis low dating back to July 2007.

Cited by Wall Street Letter in each of 2014, 2015 and 2016 for “Best Research / Broker-Dealer”, the QC observations is one of three distinctive research content pieces produced by Mischler Financial Group. The QC is a daily synopsis of everything Syndicate and Secondary as seen from the perch of our fixed income trading and debt capital markets desk and includes a comprehensive “deep dive” with optics on the day’s investment grade corporate debt new issuance and secondary market data encompassing among other items, comparables, investment grade credit spreads, new issue activity, secondary market most active issues, and upcoming pipeline.

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